Arcane Topics in Economics and Philosophy, Interspersed with Various Distractions

December 09, 2011

My Take on Paul Romer's Charter Cities Concept

I am a fan of Paul Romer's ideas, as represented in this video, and in general at this blog, about charter cities. I very much like it that Romer is thinking out of the national sovereignty box. This is one of the great moral imperatives of our times. National sovereignty is to the present rather as feudalism was to the present: it helps to organize things but is an enormous source of systematic injustice, and people of good will ought to mitigate, undermine, modify, hamper, and confuse it at every turn. The big political causes I support, like the Iraq War and immigration reform, are calculated to replace the worst iniquities of national sovereignty with something more free, just, and/or rational. One of the great virtues of organizations like the IMF and the World Bank (and one reason why I'm proud to have worked at the latter) is that they stand athwart the matrix of sovereign states.

Romer is probably the greatest living theorist of economic growth, and I expect he'll win the Nobel Prize at some point. In the video, he makes the case that Hong Kong is the most successful development project in history, and he wants to replicate it. He actually toys with the idea of "Give war a chance," and it makes me wonder if he's a closet Iraq War supporter, on the obvious grounds that it replaced a worse government with a better one, but he doesn't think, in general, that conquest, or even liberation, by military force, is a good way to remake the world in a manner that is conducive to growth, development, the betterment of the human condition, etc. He suggests, instead, that charter cities might be carved out of the sovereign territory of less developed countries, with their consent, and administered by wealthy countries, but with the citizens of the less developed countries having full access-- a little bit like Hong Kong. These areas could be magnets for enterprising people and would then spread development through their host countries, as Hong Kong became the catalyst for economic growth throughout southeastern China.

Brilliant! Of course, it would depend on developing countries agreeing to it, but I think that might be possible. I would propose a different plan, though, which borrows Romer's ideas but adds another dimension and motivation to them.

Generally speaking, the right to migrate was better respected in almost any past epoch in history than it is in the present dark age of border controls. In ancient times, in the Middle Ages, in the early modern period, in the 19th century, one might easily wander from the heart of civilization to the ends of the earth and back without encountering official interference. Today, this is impossible, unless one is willing, among other things, to risk one's life in the deserts of Arizona, as some brave and noble souls dare to do. One might say that in the past the whole world was more like the deserts of Arizona. One might indeed run a risk of bandits, but the bandits were less likely to wear badges and were not paid by taxpayers. Of course this institution of immigration restrictions is highly regrettable, unjust, inefficient, and so forth, and in the interests of human flourishing, commerce, Christianity, and everything else good and praiseworthy I wish to see it abolished, but that is not the point here. My point is that while the right to immigrate was better respected in the past (especially for travelers and sojourners; acquiring land and settling might still have been difficult) the right to emigrate is in theory more widely acknowledged today. Thus, serfs had more rights than slaves, but they were still tied to the land, albeit running away was often not too difficult for the enterprising. 20th-century totalitarian regimes, too, tried to prevent emigration (and in general their citizens were a lot like slaves) but they were pressured by the West on human rights grounds to allow it, and since the fall of communism there are few places in the world where the right to emigrate is restricted by the country that is being emigrated from. Often, however, prospective emigrants have no place to go. And it seems to me disingenuous to deny that this gives a country like America a good deal of guilt in all the crimes of regimes that do not respect human rights. A Chinese or Iranian torturer might have fewer victims at his disposal if Chinese and Iranians could board a plane to the United States and expect to be admitted. People are trapped under bad governments by the immigration restrictions of the West. The border patrol is working for, among others, Vladimir Putin and Ahadminejad. We are their jailors.

Now, if we want to mitigate this guilt, it is not necessary to open our own borders, but only that some emigration options be available to all the world's people. So this becomes a second use for the Hong Kong-style charter cities that Paul Romer wishes to create. To administer them, I think the best agency would be the World Bank. It is largely in the business of institutional design or you might say institutional export. When I was working at the World Bank and found that people were confused about what it did, I coined a half-joking aphorism which, however, puts it in a nutshell: "Think of World Bank as the British Empire. But think of it through the lens of Marx's dictum that 'history repeats itself, first time as tragedy, second time as farce.'" That's slightly more cynical than I would actually want to be about the World Bank but I think it captures a lot of things. First, the altruism. The British Empire was partly motivated, at least, by very high ideals, by the quest to spread liberty and civilization to benighted peoples. The abolition of suttee, the despicable Indian custom of forcing widows to burn themselves alive, is emblematic. Second, third, fourth fifth, and sixth, the creativity, flexibility, consultativeness, enlightenment and intelligence of the British Empire/World Bank: they like to work with local rulers and win them over, using reason and argument as well as the influence of prestige, plus, lastly, a bit of money. Of course, the British Empire also had guns. This is where the analogy breaks down, and it's also why the word "farce" is not entirely inapt: sometimes, indeed often, World Bank consultants develop excellent plans and schemes but are helpless against local vested interests and corruption. But they have lots of experience thinking about government, they have good intentions, they have a kind of international legitimacy that the US, for example, lacks, they are throughly multicultural and progressive (a word which has a much more creditable meaning internationally than domestically), they are technocratic and insulated from politics. They are trusted by multinational corporations.

So, my proposal. Launch a global initiative-- probably the US would have to help, but Europe could originate it too-- to make the right to emigrate a worldwide reality, by creating an archipelago of no-passport-necessary sanctuary cities, administered by the World Bank. A general offer would be made by which countries could alienate small pockets of territory to the World Bank, probably not permanently but as a long term lease, e.g., 49 years or 99 years. This would typically be relatively undeveloped territory; not major cities. It would be up to the World Bank and/or donors to build the infrastructure, ports and roads and power plants etc. Passport control lines would be erected between these new charter cities and the rest of the host country's territory, not to keep the host country's nationals out-- again, no one is to be kept out-- but to keep in the migrants to the charter cities, other than host country nationals or those with visas to travel in the host country. This is to ensure that host countries can agree to the creation of charter cities on their territory without entirely opening their own borders, though if they want to do that, too, great, and it might be encouraged with further offers of aid.

Why would any country agree to this? Several reasons. First, money. I envision this being a development project initiated by rich countries who are willing to pay to make it happen. The terms of the lease might be quite lucrative. I would suggest, too, that regular transfers should be arranged from the tax revenues collected in the charter cities to the governments of the host countries, so that if a real Hong Kong arose on one's territory, it would pay off well. And of course, a successful charter city could promote development in the host nation the way Hong Kong promoted development in China, buying its products, outsourcing jobs as wages in the charter city rose. Also, tourism: if the charter city was successful, its residents would surely want to travel in the host country. A second incentive might be security. It might not be a good idea to have US soldiers guarding the charter cities: too politically sensitive. I would picture UN troops or some kind of global security agencies (i.e., mercenaries); but there would be at least an implicit and probably a partly explicit guarantee of the charter cities' integrity by the US and/or NATO, and perhaps by other regional security bodies and/or the UN as well; and this might be extended on a case-by-case basis to the host country as a whole. The World Bank itself might outsource a lot of its own operations to the charter cities (World Bank staffers are sometimes irritated by the hassles of getting US visas and might feel more at home in a place where they called the shots) and this could give a certain prestige and global influence to host countries. And of course, when the lease runs out, the country would gain control, if all goes well, of a dynamic new modern city built by the World Bank... albeit one populated largely by foreigners whom it might be awkward to expel. So, how many countries would take this deal? I have no idea, but it doesn't seem improbable that some would. I'm thinking mainly of Africa, but Latin America or South Asia might, too. Rich countries might do it with outlying possessions: Guam, for example, or Guantanamo Bay. Of course, the territories would be unlikely to be completely uninhabited, and how to deal with the locals is a problem, but probably not an insurmountable one. They wouldn't be kicked out, after all, and while they would have to tolerate a flood of newcomers, they could be very well compensated for that, first in direct payments, second in the rising value of their land. (The "lease" would be design to leave residual ownership rights with locals while the World Bank would get administrative rights.)

The founding principle of these charter cities would be that anyone could come, and policy would have to adapt to that. Their assets would be some donor aid and the "imprimatur," as the financial press sometimes says, of the World Bank. Who would come? Initially, the most obvious candidates are entrepreneurial types of refugees of conscience. The "market-dominant minorities" (Amy Chua's term) that lead moderately prosperous but very insecure lives in all sorts of places would certainly trust the World Bank much more than the local governments in, say, Africa, and might be glad to move to a charter city, or to acquire a second home there and spend part of their time there, perhaps educating their children there. Western universities might be keen to set up satellite campuses; or perhaps the World Bank would induce them to do so. Multinational corporations might set up offices there too: they would be ideal if you want to do business in Africa but limit one's contact with corrupt local officials. Economic migrants would be disproportionately clever and entrepreneurial; religious refugees and refugees of conscience would be disproportionately orderly and ethical, so that these charter cities would probably have rather appealing populations. They would probably be predominantly English-speaking, since in any agglomeration of people drawn from all over the world English is generally the lingua franca; possibly if one were set up in Honduras, say, it would be mainly Spanish-speaking. English might enhance the appeal of the places: "go there to learn English," parents would say. I expect the World Bank would want to use the dollar for a local currency, though if they wanted to use the charter cities as bases from which to spread a rival global currency (along the lines of the IMF's SDRs) to the dollar, that would be interesting too.

If the goal is to apply the Hong Kong model, policy would presumably be rather libertarian. But is that the World Bank's philosophy? Sort of, yes, I think. I mean, the World Bank is always thinking about social safety nets, but if you're working in Africa, South Asia, Central America, and so forth, you have to get used to the social safety net being at a pretty low level. World Bank staffers might, a bit inconsistently, support a much more generous social safety net in rich countries, but they couldn't indulge such a preference in a charter city that was constitutionally obligated to accept all comers. On social issues and religious freedom and so forth, World Bank staffers' inclinations are quite libertarian.

I expect you'd get a lot of ideas fermenting, from tech entrepreneurialism to political radicalism. You might get a flourishing of the arts as well, just as a result of the blending of different cultures. You might get a lot of religious piety too. Christian missionaries would love them, but the international left might find them hospitable too: charter cities might be to the global left today what Geneva was to Lenin.

What about crime? A possibility. Why crime is high in some places and low in others is not well understood, and to the extent that it depends on social solidary (but I'm not sure it does) that would be hard for World Bank technocrats to foster. What about terrorism? Also a possibility.

If it were just me, I'd feel silly proposing something so ambitious and eccentric. But Paul Romer might just have enough influence to make it happen.